Highpower International Reports Fourth Quarter and Full Year 2018 Financial Results

SAN DIEGO and SHENZHEN,China,March 28,2019 -- Highpower International,Inc. (NASDAQ: HPJ) ("Highpower" or the "Company"),a developer,manufacturer,and marketer of lithium-ion and nickel-metal hydride (Ni-MH) rechargeable batteries,battery management systems,and a provider of battery recycling,today announced its financial results for the fourth quarter and year ended December 31,2018.

Fourth Quarter 2018 Highlights (all results compared to prior year period)

Net sales for the fourth quarter of 2018 increased 12.0% to $88.7 million from $79.2 million. Excluding the impact of the deconsolidation of Ganzhou Highpower Technology Co.,Ltd. ("GZ Highpower"),net sales increased 40.7% to $88.7 million from $63.0 million.

Lithium business net sales increased 38.5% to $66.3 million from $47.9 million.

Gross margin increased to 23.1% of net sales compared to 14.9%.

Net income attributable to the Company for the fourth quarter of 2018 was $5.4million,or $0.35 per diluted share,compared to $4.8 million,or $0.31 per diluted share. Excluding the impact of the deconsolidation of GZ Highpower,net income attributable to the Company increased 20.9% to $5.4 million from $4.5 million.

Full Year 2018 Highlights (all results compared to prior year period)

Net sales increased 20.4% to $293.9 million from $244.2 million. Excluding the impact of the deconsolidation of GZ Highpower,net sales increased 36.1% to $293.9 million from $215.9 million.

Lithium business net sales increased 36.1% to $220.0 million from $161.7 million.

Gross margin was 19.3% compared to 19.4%.

Net income attributable to the Company decreased21.6% to $13.2million,or $0.84per diluted share,compared to $16.8million,or $1.09 per diluted share. Excluding the impact of the deconsolidation of GZ Highpower,net income decreased 16.4% to $13.2million compared to $15.7million.

Mr. George Pan,Chairman and CEO of Highpower International,commented,"We are pleased to report that our top-line performance beat our guidance for both the fourth quarter and full year 2018,thanks to growing demand for high quality and high safety rechargeable batteries and total solutions from the high-end consumer product,industrial application,artificial intelligence and wearable product industries. Our strategy of focusing on target applications and customers started to yield results,with net sales growing more than 20% year over year in 2018."

Mr. Pan continued,"Looking forward to 2019,we expect continued challenges and opportunities from changes in the macro environment and in the industry supply chain. We will stay true to our mission of producing high quality and safe battery products and services and our strategy of focusing on applications and customers where we can best add value with our core strengths. At the same time,we will manage our operations and customer expectations to minimize the impact."

Fourth Quarter and Full Year 2018 Financial Results

NetSales

Net sales for the fourth quarter of 2018 increased 12.0% to $88.7 million from $79.2 million in the prior year period,primarily attributable to growth in revenues from both the Lithium segment and the Ni-MH batteries and accessories segment. The year-over-year increase of net sales was primarily driven by the optimization of the Company's sales structure,partially offset by the impact of the deconsolidation of GZ Highpower. Excluding the impact of the deconsolidation of GZ Highpower,net sales increased 40.7% to $88.7 million from $63.0 million.

Net sales increased 20.4% to $293.9 million for the year ended December 31,2018,compared to $244.2 million in 2017. Excluding the impact of the deconsolidation of GZ Highpower,net sales increased 36.1% to $293.9 million from $215.9 million.

GrossProfit

Gross profit for the fourth quarter of 2018 increased 73.5% to $20.5 million from $11.8 million in the prior year period. Gross margin for the fourth quarter of 2018 increased to 23.1% from 14.9% in the prior year. Excluding the impact of the deconsolidation of GZ Highpower,gross margin was 23.1% compared to 17.0%.

Gross profit for the year increased 20.1% to $56.9 million from $47.4 million in the prior year period. Gross margin was 19.3% and 19.4% for full year 2018 and 2017,respectively. Excluding the impact of the deconsolidation of GZ Highpower,gross profit for 2018 increased 29.2% to $56.9 million from $44.0 million. Gross margin was 19.3% compared to 20.4%.

Operating Expenses

Research and development (R&D) expenses for the fourth quarter of 2018 were $3.8 million compared to $3.1 million in the prior year period. As a percentage of net sales,R&D expenses increased to 4.3% from 3.9% in the prior year period. Research and development expenses were $13.5 million,or 4.6% of net sales,for 2018 compared to $9.5 million,or 3.9% of net sales,in 2017. The increase in R&D expenses were primarily driven by continued hiring for key positions and new graduates.

Selling and distribution expensesfor the fourth quarter of 2018 were $3.4 million compared to $2.3 million in 2017. As a percentage of net sales,selling and distribution expenses increased to 3.8% from 2.9% in the prior year period.Selling and distribution expenses were $10.1 million,or 3.4% of net sales,in 2018 compared to $7.5 million,or 3.1% of net sales,in 2017. The increase was mainly driven by expanded business scale,including marketing expenses for more brand customers.

General and administrative expensesfor the fourth quarter of 2018 were $5.5 million compared to $5.4 million in the prior year period. As a percentage of net sales,general and administrative expenses decreased to 6.2% from 6.8% in the prior year period. General and administrative expenses were $19.3 million,or 6.6% of net sales,in 2018 compared to $15.4 million,or 6.3% of net sales,in the prior year. The increase was mainly due to the increase of payroll expenses and amortization of share-based compensation.

Net Income

Net income attributable to the Company for the fourth quarter of 2018 increased to $5.4 million from $4.8 million in the prior year period. Net income attributable to the Company per diluted share for the fourth quarter of 2018 increased to $0.35 from $0.31 in the prior year period. Excluding the impact of the deconsolidation of GZ Highpower,net income attributable to the Company increased 20.9% to $5.4 million from $4.5 million in the prior year period.

For the quarters endedDecember 31,2018 and 2017,the Company's weighted average diluted shares outstanding used in computing diluted shares were 15,573,840 and 15,648,888,respectively.

Net income attributable to the Company for full year 2018 decreased to $13.2 million from $16.8 million in the prior year period. Net income attributable to the Company per diluted share for the full year decreased to $0.84 from $1.09 in the prior year period. Excluding the impact of the deconsolidation of GZ Highpower,net income for the full year 2018 and 2017 was $13.2 million and $15.7 million,respectively.

For the years ended December 31,the Company's weighted average diluted shares outstanding used in computing diluted share were 15,606,177 and 15,435,371,respectively.

EBITDA

EBITDA for the fourth quarter of 2018 decreased 3.4% to $8.6 million from $9.0 million in the prior year period. EBITDA for the full year of 2018 decreased 16.4% to $23.2 million from $27.8 million in the prior year period.

A table reconciling EBITDA,a non-GAAP financial measure,to the appropriate GAAP measure is included with the Company's financial information below.

Revenue Breakdown by Geography:

For the years ended December 31,

2018

2017

$

$

Net sales

China mainland

142,429,214

139,096,630

Asia,others

119,255,566

81,060,414

Europe

24,482,803

18,684,852

North America

7,385,580

4,769,797

Others

378,798

554,619

293,931,961

244,166,312

Balance Sheet Highlights

December 31,

($ in millions,except per share data)

2018

2017

$

$

Cash

24.9

14.5

Total Current Assets

215.0

156.0

Total Assets

288.1

220.3

Total Current Liabilities

210.8

152.3

Total Liabilities

210.8

153.1

TotalEquity

77.3

67.2

Total Liabilities and Equity

288.1

220.3

Book Value Per Share

4.97

4.33

Financial Outlook

For the first quarter of 2019,the Company expects net revenues to grow over 20% year over year. Gross margin is expected to be around 20% for the first quarter of 2019. The Company will closely monitor all potential risks and uncertain impacts related to the trade conflict between the U.S. and China,raw material prices,and exchange rates.

Conference Call Details

The Company will hold a conference call on Thursday,2019,at 10:00 am Eastern Time or 10:00 pm Beijing Time to discuss the financial results. Participants may access the call by dialing the following numbers:

United States:

877-407-3108

International:

201-493-6797

To listen to the live webcast,please go to www.highpowertech.com and click on the conference call link,or go to https://78449.themediaframe.com/dataconf/productusers/hpj/mediaframe/29117/indexl.html. This webcast will be archived and accessible through the Company's website for approximately 30 days following the call.

About Highpower International,Inc.

Highpower International was founded in 2001 and produces high-quality Nickel-Metal Hydride (Ni-MH) and lithium-based rechargeable batteries used in a wide range of applications such as electric buses,bikes,energy storage systems,power tools,medical equipment,digital and electronic devices,personal care products,and lighting,etc. Highpower's target customers are Fortune 500 companies and top 20 companies in each vertical segment. With advanced manufacturing facilities located in Shenzhen,Huizhou,and Ganzhou of China,Highpower is committed to clean technology,not only in the products it makes,but also in the processes of production. The majority of Highpower International's products are distributed to worldwide markets mainly in the United States,Europe,China and Southeast Asia.

Use of Non-GAAP Measures

The Company has supplemented its reported GAAP (generally accepted accounting principles) financial information with non-GAAP measures. EBITDA was derived by taking earnings before interest expense (net),taxes,depreciation and amortization. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with U.S. GAAP.The Company believes this non-GAAP measure is useful to investors as it provides a basis for evaluating the Company's operating results in the ordinary course of its operations. This non-GAAP measure is not based on any comprehensive set of accounting rules or principles.The Company believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with its results of operations as determined in accordance with U.S. GAAP and that these measures should only be used to evaluate the Company's results of operations in conjunction with,and not in lieu of,the corresponding GAAP measures. EBITDA are reconciled in the tables below to the most directly comparable measure as reported in accordance with GAAP.

Forward Looking Statements

This press release contains "forward-looking statements" within the meaning of the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995that are not historical facts. Such forward-looking statements include outlook on net revenues and gross margins,business and financial expectations and anticipated growth during 2019. These statementscan be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should," "project," "plan," "seek," "intend," or "anticipate" or the negative thereof or comparable terminology. Such statements involve known and unknown risks,uncertainties and other factors that could cause the Company's actual results to differ materially from the results expressed or implied by such statements,including,without limitation; inability to successfully expand our production capacity and improve production efficiency; fluctuations in the cost of raw materials; our dependence on,or inability to attract additional,major customers for a significant portion of our net sales; our ability to increase manufacturing capabilities to satisfy orders from new customers; our ability to maintain increased margins; our dependence on the growth in demand for smart wearable devices and energy storage systems,and other digital productsand the success of manufacturers of the end applications that use our battery products; ; our responsiveness to competitive market conditions; our ability to successfully manufacture our products in the time frame and amounts expected; the market acceptance of our battery solutions,including our lithium ion batteries; impact of trade relations between China and the U.S. and other countries where we sell our products; unexpected fluctuations in exchange rates and our ability to successfully manage hedging; our ability to continue R&D development to keep up with technological changes,and adverse changes in legal,regulatory and economic factors generally. For a discussion of these and other risks and uncertaintiessee "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report for the year ended December 31,2018 on Form 10-K and other public filings with the SEC. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable,there can be no assurance that such expectations will prove to be correct. The Company has no obligation to update the forward-looking information contained in this press release.

CONTACT:

Highpower International,Inc.

Sunny Pan

Chief Financial Officer

Tel: +86-755-8968-6521

Email: ir@highpowertech.com

Yuanmei Ma

Investor Relations Manager

Tel: +1-909-214-2482

Email: ir@highpowertech.com

ICR,Inc.

Rose Zu

Tel: +1-646-931-0303

Email: ir@highpowertech.com

HIGHPOWER INTERNATIONAL,INC.AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Stated in US Dollars)

December 31,

December 31,

2018

2017

$

$

ASSETS

Current Assets:

Cash

24,916,484

14,502,171

Restricted cash

44,495,633

25,953,946

Accounts receivable,net

77,279,817

58,252,999

Amount due from a related party

477,663

1,165,838

Notes receivable

256,712

2,517

Advances to suppliers

2,292,843

6,050,531

Prepayments and other receivables

10,457,789

4,268,527

Foreign exchange derivative assets

-

236,436

Inventories

54,790,461

42,946,644

Total Current Assets

214,967,402

155,983,609

Long-term prepayments

2,617,419

3,715,445

Property,plant and equipment,net

56,523,177

46,520,776

Land use right,net

2,445,751

2,639,631

Other assets

643,128

748,431

Deferred tax assets,net

865,370

750,267

Long-term investments

9,993,852

9,906,379

TOTAL ASSETS

288,056,099

220,264,538

LIABILITIES AND EQUITY

LIABILITIES

Current Liabilities:

Accounts payable

66,486,690

60,368,012

Deferred government grants

464,206

309,638

Short-term loans

24,856,744

10,128,646

Non-financial institution borrowings

8,761,426

10,756,158

Notes payable

73,607,284

54,859,478

Foreign exchange derivative liabilities

521,509

-

Amount due to related parties

6,116,851

-

Other payables and accrued liabilities

25,860,703

12,243,345

Income taxes payable

4,124,719

3,609,391

Total Current Liabilities

210,800,132

152,274,668

Income taxes payable,noncurrent

-

777,685

TOTAL LIABILITIES

210,132

153,052,353

COMMITMENTS AND CONTINGENCIES

-

-

HIGHPOWER INTERNATIONAL,INC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS(CONTINUED)

(Stated in US Dollars)

December 31,

December 31,

2018

2017

$

$

EQUITY

Stockholders' equity

Preferred stock

(Par value: $0.0001,Authorized: 10,000,000 shares,Issued and outstanding: none)

-

-

Common stock

(Par value: $0.0001,Authorized: 100,15,559,658 shares issued and

outstanding at December 31,2018 and 15,509,658 shares issued and outstanding

at December 31,2017,respectively)

1,556

1,551

Additional paid-in capital

13,863,282

12,709,756

Statutory and other reserves

8,012,052

6,549,815

Retained earnings

56,173,912

44,481,568

Accumulated other comprehensive (loss) income

(794,835)

3,469,495

TOTAL EQUITY

77,967

67,212,185

TOTAL LIABILITIES AND EQUITY

288,538

HIGHPOWER INTERNATIONAL,INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTSOF OPERATIONS AND COMPREHENSIVE INCOME

(Stated in US Dollars)

For the years ended December 31,

2018

2017

$

$

Net sales

293,312

Cost of sales

(237,725)

(196,792,444)

Gross profit

56,875,236

47,373,868

Research and development expenses

(13,492,057)

(9,512,074)

Selling and distribution expenses

(10,087,885)

(7,500,560)

General and administrative expenses

(19,300,316)

(15,393,791)

Foreign currency transaction gain (loss)

1,323

(2,390,417)

Total operating expenses

(41,019,935)

(34,796,842)

Income from operations

15,855,301

12,577,026

Changes in fair value of warrant liability

-

259

Changes in fair value of foreign exchange derivatives

(1,145,387)

273,496

Government grants

2,460,013

1,357,852

Other income

268,438

458,247

Equity in (loss) earnings of investee

(140,132)

107,243

Gain on dilution in equity method investee

-

500,270

Gain on sale of long-term investment

-

1,677,367

Gain on deconsolidation of a subsidiary

-

6,004,008

Interest expenses

(1,718)

(1,426,547)

Income before income taxes

15,536,515

21,529,221

Income taxes expenses

(2,381,934)

(4,315,325)

Net income

13,154,581

17,213,896

Less: net income attributable to non-controlling interest

-

441,044

Net income attributable to the Company

13,581

16,772,852

Comprehensive income

Net income

13,896

Foreign currency translation (loss) gain

(4,330)

4,234,078

Comprehensive income

8,890,251

21,447,974

Less: comprehensive income attributable to non-controlling interest

-

479,098

Comprehensive income attributable to the Company

8,251

20,968,876

Earnings per share of common stock attributable to the Company

- Basic

0.85

1.09

- Diluted

0.84

1.09

Weighted average number of common stock outstanding

- Basic

15,546,644

15,326,797

- Diluted

15,177

15,371

HIGHPOWER INTERNATIONAL,INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTSOF CASH FLOWS

(Stated in US Dollars)

For the years ended December 31,

2018

2017

$

$

Cash flows from operating activities

Net income

13,896

Adjustments to reconcile net income to net cash provided by (used in) operating

activities:

Depreciation and amortization

5,938,295

5,290,980

(Recovery of bad debt) bad debt expense

(784,431)

58,728

Loss on disposal of property,plant and equipment

272,633

48,976

Impairment of property,plant and equipment

569,120

-

Deferred taxes

(156,441)

374,626

Changes in fair value of foreign exchange derivatives

1,387

(228,314)

Gain on deconsolidation of a subsidiary

-

(6,008)

Equity in loss (earnings) of investee

140,132

(107,243)

Gain on dilution in equity method investee

-

(500,270)

Gain on sale of long-term investment

-

(1,367)

Share based compensation

941,031

326,171

Changes in fair value of warrant liability

-

(259)

Changes in operating assets and liabilities:

Accounts receivable

(21,085,450)

(11,926,311)

Other assets

76,027

(288,180)

Notes receivable

2,291,487

(1,389,107)

Advances to suppliers

3,567,895

(5,070,174)

Prepayments and other receivables

(5,039,974)

(673,006)

Amount due from a related party

650,454

7,140,963

Amount due to related parties

141,577

(1,569,839)

Inventories

(14,407,492)

(24,705,574)

Accounts payable

5,066

15,183,933

Deferred government grants

250,989

154,151

Other payables and accrued liabilities

14,422,792

2,023,991

Income taxes payable

(86,809)

2,240,550

Net cash flowsprovided by (used in)operating activities

7,510,869

(4,082,687)

Cash flows from investing activities

Acquisitions of plant and equipment

(15,598,608)

(13,730,328)

Loan to a related party

-

(514,821)

Proceeds from sale of long-term investment

-

10,535,062

Impact to cash resulting from deconsolidation of a subsidiary

-

(632,754)

Payment for long-term investment

(316,484)

-

Net cash flows used in investing activities

(15,915,092)

(4,342,841)

Cash flows from financing activities

Proceeds from short-term bank loans

28,824,056

12,725,676

Repayments of short-term bank loans

(12,353)

(22,331,365)

Proceeds from a related party

5,945,384

-

Repayment of loan from a related party

(195,919)

-

Proceeds from non-financial institution borrowings

-

10,386,681

Repayments of non-financial institution borrowings

(1,507,068)

(3,857,910)

Proceeds from notes payable

130,784,037

90,871,294

Repayments of notes payable

(108,233,565)

(69,511,376)

Payment of derivative instruments

(375,260)

-

Proceeds from exercise of employee options

-

802,691

Repayment from GZ Highpower

-

6,035,600

Net cash flows provided by financing activities

42,258,312

25,121,291

Effect of foreign currency translation on cash

(4,898,089)

3,222,321

Net increase in cash and restricted cash

28,956,000

19,918,084

Cash and restricted cash- beginning of year

40,456,117

20,538,033

Cash and restricted cash- end of year

69,412,117

40,117

Supplemental disclosures for cash flow information:

Cash paid for:

Income taxes

2,625,182

1,700,149

Interest expenses

1,950,076

1,550,878

Non-cash investing and financing activities:

Shares issued for legal case settlement

212,500

-

Offset of deferred income related to government grant and property,plant and

equipment

75,584

263,948

Purchase of property and equipment financed by accounts payables

3,895,765

(1,150,460)

Reconciliation of cash and restricted cash

Cash

24,171

Restricted cash

44,946

Total cash and restricted cash shown in the consolidated statements of cash flows

69,117

Reconciliation of Net Income to EBITDA

For the years ended December 31,

2018

2017

$

$

Net income attributable to the Company

13,852

Interest expense

1,718

1,547

Income taxes expenses

2,934

4,325

Depreciation and Amortization

5,980

EBITDA

23,236,528

27,805,704

Key financial items excluding GZ Highpower

For the years ended December 31,

2018

2017

$

$

Sales:

Lithium Business

219,964,972

161,660,771

Ni-MH Batteries and Accessories

73,966,989

53,309

Sales to GZ Highpower

-

746,776

Net sales (excluding GZ Highpower)

293,961

215,899,856

Gross profit (excluding GZ Highpower)

56,236

44,549

Gross profit margin (excluding GZ Highpower)

19.3%

20.4%

Net income:

Net income

13,896

Less: Net income of GZ Highpower (including transaction

with GZ Highpower)

-

1,470,145

Net income (excluding GZ Highpower)

13,581

15,743,751

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